USD/CAD Weekly Forecast: Making the drift lower seem stationary

The Canadian dollar eked out a small gain this week, but broke no new ground and ended near the bottom of its October range. Opening on Monday at 1.3189, Tuesday’s finish at 1.3128 defined the rest of the week. Wednesday saw an attempt to break below support at 1.3100, the low of 1.3081 quickly reverted to close at 1.3146. The conclusion on Friday at 1.3125 mirrored the low on Tuesday.

Weak Retail Sales in August and stable September prices did not deter Canadian dollar gains nor did the 2.7% decline in West Texas Intermediate (WTI), the North American crude oil pricing standard, which remains pinned between support at $39.25 and resistance at $41.30.

Thursday evening’s final US presidential debate which featured a strong performance by Donald Trump evinced no impact on currency or other markets. Polling averages in the six swing states that will determine the election have tightened from a 4.5% Biden advantage on last Friday the 16^th to 3.9% on Sunday the 25^th.

Markets await the Bank of Canada’s (BoC) latest economic and policy assessments on Wednesday. No change in the 0.25% base rate is anticipated. Governor Tiff Macklem is expected to provide clarification on the bank's stance on negative interest rates which it has said are in the “toolkit” but not on the current agenda.

Negotiations in the US Congress over a new stimulus package were no closer to completion but nor were they suspended as Democratic House Speaker Nancy Pelosi’s 48-hour deadline came and went without remark.  

Rising COVID-19 cases around the world, higher in Europe than the United States, had no differential impact on currencies or other markets.

Canadian Retail Sales rose 0.4% in August missing the 1.1% forecast and the same increase in July. Sales have recovered well from the 34.8% plunge in March and April, rising 44.9% in the four months to August, with a 43.9% jump in May and June being the main event.

September’s Consumer Price Index (CPI) was unchanged at -0.1% as expected and the Bank of Canada Core CPI rose 0.1% on the month as predicted and 0.7% on the year, just under the 0.8% projection. Core annual inflation was 1.8% in February.

 Wholesale Sales in August rose 0.3% down from July’s 4.3% gain. The May-through-August rebound of 29.1% has surpassed the March and April decrease of 23.8%.

US data was limited but generally better than forecast headlined by a surprise drop in jobless claims.

New home construction remained strong. Housing Starts rose 1.9% to 1.415 million annualized in September from 1.388 million and Building Permits climbed 5.2% to 1.553 million from 1.476 million.

The Fed's Beige Book, the anecdotal survey of the US economy prepared for the November 4-5 FOMC meeting, noted “slight to modest' growth in the latest indication that the recovery from the pandemic lockdown is slowing. With no interest rate developments expected through the end of 2023 by the bank's own economic projections, markets took no notice of the new assessment.

Initial Jobless Claims in the week of October 16 dropped to 787,000 their lowest level since the beginning of the pandemic in March. A listing of 860,000 had been predicted. The prior week's original release of 898,000 was revised down to 842,000. The four-week moving average fell to 811,250, the lowest since the week of March 13. Continuing Claims fell to 8.373 million in the October 9 week, also a pandemic low and well below the 9.5 million forecast.

Existing Home Sales, 90% of the US housing market, rose 9.4% almost double the 5% prediction, to 6.54 million in September, from 5.98 million in August. It was the highest rate of annual sales since February 2007.

Markit's Manufacturing Purchasing Managers' Index for October rose 0.1 to 53.3. The Services Index climbed to 56 from 54.6 in September.

FXStreet

USD/CAD outlook

The sideways movement of the USD/CAD since the failure of the descending channel break on September 21 to institute a new higher trend continued for a second week. With no important economic information scheduled in the next five days and the Bank of Canada unlikely to change its economic assessment or forward view of interest rates, bias should remain neutral to weakly negative. 

Technically the loonie is hemmed in by close support at 1.3100 and 1.3070 and resistance at 1.3170 and 1.3200. Were the USD/CAD to renter the descending channel at 1.2950 the prognosis for the Canadian dollar would rise substantially. Without a change in the fundamental picture, the current technical aspects of the USD/CAD are unlikely to generate major movement.

Canada and US statistics October 26-October 30

Wednesday's Bank of Canada meeting is the main event in the week ahead and though no change is anticipated in policy an explication of the governors' view on negative interest rates, could if unexpectedly supportive, detract from the Canadian dollar. 

The GDP accounting for August is predicted to gain 3.3%, following July's 3% rise. Canada has not fully recovered the 19% March and April decline with gains of 14.3% through July.  

American statistics should outline the excellent housing market and resilient consumer sector.

New Home Sales are forecast to reach 1.022 million annually in September from their record 1.011 in August. The prior high had been 981,000 in April 2007, at the height of the housing bubble.

Durable Goods Orders are estimated to rise by 0.7% in September from 0.5% in August. Nondefense Capital Goods Orders, the business investment proxy, are expected to add 0.5% after August's 1.9% increase. Durable Goods Orders ex Transportation are expected to rise by 0.4% and ex Defense Orders are estimated to rise by 0.2%. After the strong results for September Retail Sales, the risk to the Durable Goods Orders is to the upside.

Initial Jobless Claims are forecast to continue their descent to 763,000 in the October 23 week. Third-quarter annualized GDP is forecast to jump 30.8% after collapsing 31.4% in the locked-down second quarter.

The Personal Consumption Price Index (PCE) is expected to rise 0.1% on the month and 1.3% on the year in September. The core rate should gain 0.1% and 1.4% respectively.

Personal Income is expected to recover to a 0.5% gain in September after falling 2.7% in August. Personal Spending should be unchanged in September at 1%.

Despite a large number of statistics, market impact should be limited. New Home Sales may be at a record level but at 10% of the housing sector, they do not set the pace. The slow improvement in Initial Jobless Claims is now normal and Personal Spending and Income figures restate earlier information.

Third-quarter GDP has the greatest chance to effect trading and support the dollar, partially because the risk is for an improved number. The Atlanta Fed GDPNow model is slightly higher than our survey at 35.3%.

USD/CAD technical outlook

The USD/CAD is pinioned between closely placed support and resistance lines. Bias is essentially neutral as the movement in the past two weeks has indicated. A weak downward drift is due to the extension of the seven-month trend and the failure of the channel break to establish positive momentum. The near support at 1.3100, 1.3070 and 1.3040 should hold absent a fundamental or external development. Resistance at 1.3170 is weak but the lines at 1.3200 and 1.3255 are solid.  

The Relative Strength Index at 41.28 is mildly negative. The moving averages are all above the market and without specific resistance reference: 21-day1.3226; 100-day 1.3342; 200-day 1.3541. 

Resistance: 1.3170; 1.3200; 1.3255; 1.3315; 1.3400

Support; 1.3100; 1.3070; 1.3040; 1.2965

USD/CAD Forecast Poll

Last week's bullish read in the one-week FXStreet Forecast Poll was too optimistic as Friday's close at 1.3125 was lower by more than 100 points. The expert forecast this week respects the support lines at 1.3100 and 1.3070.  The one-month and one-quarter outlooks are in essence the same forecast though the bullish view at the monthly is necessitated by the drop below 1.3200. The longer views believe the seven-month downtrend is exhausted.